Home loans guide – mortgage terms & jargon explained

Accrued Interest

Accrued Interest is the interest that has been incurred but not paid by the borrower or received by the lender.

Additional Buyer's Stamp Duty (ABSD)

A tax levied on top of the Buyer’s Stamp Duty when:

· Singapore Citizens purchase their second and subsequent properties

· Singapore Permanent Residents make any property purchases

· Foreigners and Entities purchase any property

ABSD must be paid upfront. You cannot use a home loan to pay for it, but you can use your CPF.

Ad Valorem

Latin for “according to value”, ad valorem means that a charge is dependent on the assessed value of the item, instead of a fixed sum. In Singapore, you’ll typically see this applied to taxes on property purchases in Singapore.

Amortisation

The gradual reduction in the principal amount owed on a debt as it is being repaid.

During the earlier years of the loan, loan repayments mostly go towards the interest owed. During the final years of the loan, loan repayments are almost exclusively used to repay the remaining principal.

Annual Value (AV)

The AV of a property is based on the estimated annual rent of a property if it were to be rented out. excluding the rent for furniture, fittings and service charge. You can find the AV on your property tax bill. The IRAS (Inland Revenue Authority of Singapore) determines the AV of your property by analysing rents of comparable properties.

Asset Line

A secured short-term loan facility that allows the customer to access cash using his property as collateral. It provides flexibility as there are no restrictions on how the funds may be used and no fee for early repayment.

Bankruptcy Search

A search conducted to determine if any bankruptcy proceedings and other legal proceedings have been filed against the borrower. A bankrupt may not transfer his interest to a purchaser or mortgage his property to a bank, without the Official Assignee’s consent.

Board Rate

A mortgage interest rate that is determined internally by banks and not based on a public benchmark such as SORA.

Borrower

The person who is taking out a home loan from the bank.

Bridging Loan

A short-term loan that is granted to homeowners who are selling their existing residential property and purchasing another one. It can be used in the purchase of all types of residential property.

It is typically used to help with the down payment of the new property, while waiting to receive the sale proceeds from an existing residential property.

Bridging loans will only be disbursed after the person who is buying your existing property has done one of these: i) Signed an Option to Purchase (OTP), or ii) Executed a Sale and Purchase (S&P) Agreement, or iii) Received confirmation of their first appointment with HDB.

During the loan period, the borrower need only repay the interest. The loan has to be repaid to the Bank in full within 6 months after it is disbursed.

Cancellation Fee

A cancellation fee is charged if you reject the loan after accepting the letter of offer (LO), usually a small percentage of the undisbursed loan amount.

Cash Over Valuation (COV)

The difference between the agreed price of a HDB resale flat and its actual valuation by HDB. COV is payable if the flat is sold above HDB valuation and can only be paid with cash.

Caveat

A caveat serves as a public notice that the person lodging it is claiming an interest in the property and lapses in 5 years from the date of lodgement unless it is discharged or renewed.

Central Provident Fund (CPF)

Singapore’s mandatory social security savings scheme funded by contributions from employers and employees, to serve retirement, housing and healthcare needs.

Certificate of Statutory Completion (CSC) / Temporary Occupancy Permit (TOP)

Certificate of Statutory Completion (CSC) / Temporary Occupancy Permit (TOP) is issued by the Commissioner of Building Control to a building project when the building works are completed. The building can only be occupied after a CSC or TOP has been granted.

Application may be made directly for a CSC when all the requirements have been complied with. Otherwise, if only certain requisites have been complied with, application for a TOP may be made first before finally complying with all requirements and obtaining CSC. CSC is usually issued one year after TOP.

Claw-back Period

The period during which, if you fully redeem your mortgage, the bank will reclaim the cost of "freebies" issued to you when you took on a loan with them. These typically include the legal subsidy and in some cases, valuation fees and fire insurance premiums.

Collateral

An asset or security pledged for the payment of a loan.

Comparative Market Analysis (CMA)

A report of similar properties in the area that were recently sold or pending sale. This is usually provided by a property agent to a buyer, as a basis for comparison for the property that the buyer is keen on. The CMA helps the buyer determine if he or she is paying a fair price for the property and how much he should offer.

Similar properties are determined by factors such as their age, amenities, square footage, condition and location.

Conservancy / Maintenance Fees

Fees collected for the purpose of maintenance and use of common property.

Concessionary Loan

Refers to HDB’s housing loan, in which the concessionary interest rate is pegged at 0.1% above the prevailing CPF Ordinary Account interest rate. It is reviewed quarterly, in line with the CPF interest rate revisions.

Construction Loan

Construction Loan is a short-term loan for financing the construction of a new property, or the reconstruction, addition or alteration of your existing property.

Conversion

An option provided by the Bank to reprice your existing home loan at no cost, after an agreed period from the date of the first disbursement.

Conveyance

The legal process of transferring the ownership of a property (or land title) from one person to another. While it’s not compulsory for a lawyer to handle this process, it’s recommended to hire one, especially if the property price goes well into the millions.

CPF Housing Withdrawal Limit

To find out your CPF Housing Withdrawal Limit, you will need to know the valuation of your property and how much CPF you can withdraw.

Valuation of your property

Find out the lower of the following:
1. The purchase price of the property, and

2. The value of the property at the time of purchase.

Owner(s) can use their Ordinary Account (OA) savings up to this valuation to buy the property and/or pay the monthly instalments of the home loan, without having to meet any condition on the CPF balances.

It is possible for your housing loan to be outstanding when your CPF withdrawal has reached 100% of your property’s valuation. This is largely because you are using CPF to pay both the home loan's principal amount as well as the interest charges. The higher the interest on the home loan, the faster 100% of your property’s valuation will be reached.

How much CPF you can withdraw

This is the maximum amount of CPF beyond the valuation of your property that the owner(s) can use for the property. Once this is reached, no further withdrawal of CPF is allowed. From 2008 onwards, the maximum amount of CPF you can withdraw is 120% of your property’s valuation.

The maximum amount of CPF you can withdraw is the available CPF OA balances less the prevailing Minimum Sum cash component.

Credit Report

A credit report records an individual's credit history and is used by banks to determine a loan applicant's creditworthiness.

Creditworthiness

How suitable someone is deemed to receive new financial credit, based on how reliable they have been in terms of making timely repayments.

Default

A breach of your obligations to the bank, which may allow the bank to recall your loan, such as failure to make mortgage payments on time.

Deferred Payment Scheme (DPS)

A scheme whereby the usual progress payments are deferred to a later date. For example, the scheme may allow you to make an initial payment of 20% to the property developer, with the balance due only upon TOP being obtained from the relevant authorities.

Delinquent

Late payment on a home loan. Not only does it drag down your credit score and result in late payment penalties, the lending Bank may initiate legal proceedings or even foreclose on your home. However, those extreme cases are usually for delinquent payments that stretch beyond a long period without the Borrower informing the Bank of any financial difficulty.

Down Payment

A portion of the purchase price that a buyer is required to pay in cash and CPF savings to secure the purchase of a property.

Early Redemption

Early redemption refers to the repayment of the loan (principal and interest) before the maturity of the loan. There are two main types of loan redemption, partial redemption and full redemption. If you plan to repay your loan early, do seek clarification on any fees and charges that may be imposed.

Effective Interest Rate (EIR)

The true cost of taking up the home loan. EIR factors in the loan interest rate and any other costs, such as fees and charges, compounding and so on. Thus, EIR is higher than the advertised interest rate.

Encumbrance

Any lien against a property or any restriction in its use, such as an easement; a right or interest in a property held by one who is not the legal owner.

Equity

The difference between the current market value of your home and your outstanding mortgage balances and other liens.

Fair Market Value

The likely selling price of a property between a willing buyer and a willing seller in the open market. In a mortgage or a home equity loan, the fair market value is usually determined by a valuation done by a certified valuer.

Fire Insurance

Covers any damage to the building structure such as walls and electrical wiring in the event of a fire. While not compulsory, the Mortgagee or lender, such as the Bank or HDB, will require those to take a home loan to buy fire insurance.

While those who live in a private property may be covered under the Management Corporation Strata Title (entity that manages the entire block or development), any improvements they make may not be covered in the blanket policy.

Fire insurance is different from home contents insurance, which insures the contents of your home.

Fixed Deposit Home Rate (FHR)

A home loan in which the interest rate is pegged to the fixed deposit rate of the Bank. Usually includes a number, such as FHR6 or FHR18, which refers to the Bank’s 6-month fixed deposit rate and the 18-month fixed deposit rate respectively.

Fixed Rate Housing Loans

The interest rate on such loans is fixed for a set period, during which charges are often imposed for early redemption. Being protected against interest rate increases allows for easy monthly budgeting. However, if market rates were to fall during the fixed interest period, you may be left paying a comparatively higher rate.

Floating or Variable Rate Housing Loans

The interest rate on such loans may fluctuate or change periodically, often in relation to a reference rate. When the reference rate changes, payments may increase or decrease accordingly. Examples of reference rates are the Banks’ prime lending rate, SORA (Singapore Overnight Rate Average) or rates offered by the CPF Board.

Foreclosure

The lender takes legal possession of a mortgaged property when the mortgagor (borrower) defaults on their mortgage payments. After which, the lender attempts to sell the mortgaged property in order to recover the amount owed.

Guarantor

Guarantor refers to the person who agrees to be responsible for another person's liabilities in the event of the borrower's default.

Home Loan

A loan that enables the borrower to buy a property. The loan is secured by the borrower's property, which serves as collateral.

Housing & Development Board (HDB)

Singapore's public housing authority.

Housing Agent Commission

A fee paid to the housing agent engaged to buy/sell the property. The quantum or amount of the commission is usually a percentage of the sale price.

In-principle Approval (IPA)

Also known as Approval In-principle, this is an indication by the Bank of the amount of home loan that a prospective purchaser is eligible for. However, an AIP does not equate to a formal approval. The purchaser must still submit a Home Loan application, and the Bank's approval is dependent upon various factors, including property valuation, credit checks and other criteria. It is advisable to know your AIP amount before committing to a property.

Income-weighted Average Age (IWAA)

When a property has more than one borrower, the Bank uses the IWAA to calculate the LTV limit. For example, if there are two borrowers, the monthly income of Borrower A is multiplied by his age, and added to the same for Borrower B. The total is then divided by the total monthly income of both borrowers.

If the older borrower earns more, IWAA is higher; if the younger borrower earns more, IWAA is lower.

Interest Rate

Interest Rate is the rate of interest that is charged on the loan. It can be fixed, variable, or a combination of both over the loan period.

Investment Property

Property that is purchased to generate rental income or to be sold once it has appreciated in value.

Joint-tenancy Ownership

This is a term that describes joint ownership of a property by two or more owners, without division of the shares. Upon the death of any joint holder, his interest becomes vested in the survivor(s).

Land Title Search

A search which shows whether a property has any prior encumbrance or lodgement; details of owners; area of the property, and whether the owner has used CPF savings or taken a bank loan.

Legal Fees

The costs for legal services rendered in the purchase, sale, mortgage and/or redemption of a property, including with respect to withdrawal of CPF funds. Costs often include disbursements such as registration fees on transfers; lodgement fees for caveat; legal requisitions; search fees etc. You may use cash or CPF savings to pay legal fees.

Legal Requisitions

Searches conducted at various government departments inquiring into the status of a property, for example, encumbrances, whether the property is affected by any works or if notices have been issued in respect of the property.

Legal Fee Subsidy

When a home loan is taken from a Bank, the Bank may offer a subsidy on charges such as the legal fee and valuation fee. This is usually offered to those who are refinancing their home loan of a certain amount.

Letter of Offer (LO)

A letter issued by the Bank stating the terms and conditions upon which the Bank makes a formal offer of loan to the borrower.

Lien

A claim by one party against the property of another as security for a debt. This must be discharged when the property is sold. A mortgage is a form of lien.

Loan Quantum

The loan quantum or principal is the amount of money that you borrow.

Loan Tenure

The period of time that you may take to fully repay your loan.

Loan-to-value (LTV) Ratio or Limit

The housing loan amount represented as a percentage of the property's value. Thus, a property worth S$500,000 with a mortgage of S$250,000 would have an LTV ratio or limit of 50%.

Here's a guide for the current maximum LTV limits as regulated by the Monetary Authority of Singapore (MAS):

· Up to 75% for borrowers who do not have any outstanding housing loans.

· Up to 45% for borrowers who have one outstanding housing loan (whether from HDB or a financial institution regulated by MAS) at the time of applying for a housing loan for the new property purchase.

· Up to 35% for borrowers who have two or more outstanding housing loans (whether from HDB or a financial institution regulated by MAS) at the time of applying for a housing loan for the new property purchase.

Loan Servicing Account

The bank account from which the loan repayments will be deducted from. Insurance premiums are also serviced from the Loan Servicing Account.

Lock-in Period / Commitment Period

The time period during which you will have to pay an early redemption charge (usually expressed as a percentage of the loan quantum) if you repay your loan in full. Banks may also impose a charge for partial payments beyond your monthly instalments within this period.

Maturity Date

The day on which all outstanding principal, interest and fees must be repaid.

Mortgage

Transfer of an interest in your property to a lender (bank) as security for the loan granted to you for the purchase.

Mortgage Insurance / Mortgage Reducing Term Assurance (MRTA)

A reducing premium term life insurance that protects the insured's (borrower) family against liability under the housing loan in the event of his death, total or permanent disability, or terminal illness.

The Central Provident Fund Board (CPF) Home Protection Scheme is compulsory for all HDB flat owners who are using their CPF to repay their housing loans. Although it is not compulsory for private property owners to purchase mortgage insurance, it is advisable that they do so to prepare for unfortunate events and provide financial protection for themselves and their families.

Mortgagee

Lender (bank).

Mortgage Servicing Ratio (MSR)

Only applicable to housing loans for HDB flats and Executive Condominiums. MSR limits monthly repayments to 30% of the Borrower's gross monthly income. If you earn $5,000 a month, your monthly repayment amount cannot exceed $1,500.

Mortgagor

Borrower or homeowner.

Option Fee

A fee paid to the seller as consideration for the option to purchase a property. The Option to Purchase will be granted upon the payment of this fee.

Option to Purchase (OTP)

A right granted by the seller to the purchaser, to buy the property within a time frame upon payment of an Option Fee (usually 1% of the purchase price).

Prepayment

Lump sum payments made in addition to your monthly instalments.

Prepayment Penalty

A fee charged to a borrower who partially or fully repays the loan in full within the loan's lock-in period (sometimes also referred to as a redemption penalty).

Principal

The amount of money borrowed from the lender (Bank), less whatever the Borrower has already repaid. Mortgage repayments comprise the principal amount and the interest owed.

Prime Lending Rate / Prime Rate

The lowest lending rate that a Bank is prepared to lend in Singapore Dollars to its best customers (i.e. most creditworthy) on an overdraft (drawing more money than the bank account holds) or demand basis.

Progress Payment

Payment amount(s) predetermined and scheduled by the developer to correspond with the property’s different stages of development. Upon completion of each stage of construction, the developer will call for the required payment.

Property Tax

A tax levied on residential properties based on its Annual Value. All property owners are liable to pay property tax. The property tax rate for owner-occupied residential premises is lower than that levied on non-owner-occupied residential premises.

Reference Rate

Can be based on the following: CPF Ordinary Account, SIBOR, SOR or the Bank’s internal board rate. The reference rate can change at any time, and the Bank must inform you in advance before changing the interest rate on your housing loan.

Refinancing

Moving a loan (including any undisbursed amount) from one bank to another bank. Before refinancing your loan, you should check on the charges you may incur (e.g. lock-in period, claw-back period) upon cancellation of your existing loan.

Repayment Schedule

Specific details of the Borrower’s loan, such as the monthly repayment amounts, interest rate and repayment due dates.

Repricing

This commonly refers to the switch from one interest rate package to another with the same bank.

Reverse Mortgage Loan

A type of loan for seniors to borrow against the value of their fully-paid home and receive funds. They won’t need to make any loan payments until loan maturity.

Seniors (Singaporeans and Permanent Residents aged 65 to 79) who own private property can borrow against their fully-paid private residential property via the DBS Home Equity Income Loan. The funds will go towards topping up their CPF Retirement Sums, allowing them to receive monthly payouts to supplement their retirement funds for as long as they live. The loan amount and accrued interest is payable only at loan maturity, and the long loan period means that customers retain the flexibility to sell their property anytime if they so wish, and to repay the loan without penalty fee.

Sale & Purchase (S&P) Agreement

A formal contract for sale and purchase of a property.

Singapore Interbank Offered Rates (SIBOR)

Singapore Interbank Offered Rates — the interest rate at which Banks borrow from one another.

Swap Offer Rate (SOR)

SOR is based on the exchange rate between the Singapore dollar and the US dollar (USD), it’s greatly dependent on the USD London Interbank Offered Rate (LIBOR). However, given that LIBOR will cease to exist after 2021, SOR will be phased out.

Singapore Overnight Rate Average (SORA)

The volume-weighted average rate of borrowing transactions in the unsecured overnight interbank SGD cash market in Singapore between 8am and 6.15pm local time (both timings inclusive). It is administered by the Monetary Authority of Singapore (MAS), and published at 9am on the next business day in Singapore.

SORA is the new benchmark interest rate introduced by the MAS that will replace SIBOR and SOR when they are phased out by 2024.

The version most used by Banks for their floating home loans packages is the 3M Compounded SORA. This is the average of SORA rates published in the last three months.

Stamp Duty

A tax payable upon the purchase of a property.

For completed properties, Stamp Duty must be paid within 14 days from the date of signing the Sale and Purchase Agreement if the document is executed in Singapore.

For uncompleted properties, Stamp Duty must be paid within 14 days from the date of exercising the Option to Purchase.

Stamp Duty on Transfer of Property

Duty payable ad valorem on the purchase price (PP):

First $180,000 1%

Next $180,000 2%

Beyond $360,000 3%

Calculation Formula Purchase Price (PP) x 3% less $5,400 (where PP is > $360,000)

Temporary Occupation Permit (TOP)

Only applicable to uncompleted properties. Receipt of TOP means keys can be collected and the property is ready for occupation.

Tenancy-in-Common

Joint holding of a property, where each owner has a distinct share in the property. Shares owned need not be in equal portions. Upon the death of a joint owner, his interest will be disposed of according to his will or under laws of intestacy.

Title Deed

A legal document showing a person's ownership of a property.

Title Search

An examination of records used to determine the legal ownership of property and all liens and encumbrances on it. Usually performed by a lawyer.

Total Debt Servicing Ratio (TDSR)

A computation of total monthly debt obligations to total monthly gross income. This helps to assess the repayment ability of the borrower over a specific loan tenure. MAS stipulates that the Borrower's TDSR should be less than or equal to 55%.

Valuation

Market value of a property indicated by a licensed valuer.